THOMAS ALSHESKI, Employee

CODEWORKS INC, Employer

An administrative law judge (ALJ) for the Division of Unemployment Insurance of the Department of Workforce Development issued a decision in this matter. A timely petition for review was filed.

The commission has considered the petition and the positions of the parties, and it has reviewed the evidence submitted to the ALJ. Based on its review, the commission makes the following:

During the base period relevant here, the claimant (Alsheski) earned wages for performing consulting services for a client (Assurant) of the putative employer (Codeworks). In this relationship, Codeworks functioned as a staffing firm.

The issue is whether these earnings constitute base period wages.

Prior to his relationship with Codeworks, Alsheski formed a limited liability corporation, TAL Associates LLC (TAL), and applied for a federal employer identification number (FEIN).

In November 2007, Alsheski entered into a written agreement with Codeworks to perform services for Assurant at the rate of $80 per hour for a period of four months. The term of this agreement was extended twice under the same terms.

During the relevant time period, Alsheski did not perform consulting services for any other entity.

Wisconsin Statutes § 108.02 states as follows, as relevant here:

108.02 Definitions. As used in this chapter:

(4) Base period. "Base period" means the period that is used to compute an employee's benefit rights under s. 108.06...

(4m) Base period wages. "Base period wages" means:

(a) All earnings for wage-earning service which are paid to an employee during his or her base period as a result of employment for an employer;...

(12) Employee.

(a) "Employee" means any individual who is or has been performing services for pay for an employing unit, whether or not the individual is paid directly by the employing unit, except as provided in par. (b), (bm), (c), (d), (dm) or (dn)....

(bm) During the period beginning on January 1, 2000, with respect to contribution requirements, and during the period beginning on April 2, 2000, with respect to benefit eligibility, par. (a) does not apply to an individual performing services for an employing unit other than a government unit or nonprofit organization in a capacity other than as a logger or trucker, if the employing unit satisfies the department that the individual meets 7 or more of the following conditions by contract and in fact:

1. The individual holds or has applied for an identification number with the federal internal revenue service.

2. The individual has filed business or self-employment income tax returns with the federal internal revenue service based on such services in the previous year or, in the case of a new business, in the year in which such services were first performed.

3. The individual maintains a separate business with his or her own office, equipment, materials and other facilities.

4. The individual operates under contracts to perform specific services for specific amounts of money and under which the individual controls the means and methods of performing such services.

5. The individual incurs the main expenses related to the services that he or she performs under contract.

6. The individual is responsible for the satisfactory completion of the services that he or she contracts to perform and is liable for a failure to satisfactorily complete the services.

7. The individual receives compensation for services performed under a contract on a commission or per-job or competitive-bid basis and not on any other basis.

8. The individual may realize a profit or suffer a loss under contracts to perform such services.

9. The individual has recurring business liabilities or obligations.

10. The success or failure of the individual's business depends on the relationship of business receipts to expenditures....

(e) This subsection shall be used in determining an employing unit's liability under the contribution provisions of this chapter, and shall likewise be used in determining the status of claimants under the benefit provisions of this chapter....

(14m) Employing unit. "Employing unit" means any person who employs one or more individuals.

(15) Employment.

(a) "Employment", subject to the other provisions of this subsection means any service, including service in interstate commerce, performed by an individual for pay....

(26) Wages. Unless the department otherwise specifies by rule:

(a) "Wages" means every form of remuneration payable, directly or indirectly, for a given period, or payable within a given period if this basis is permitted or prescribed by the department, by an employing unit to an individual for personal services....

Pursuant to Wis. Stat. § 108.02(4m), in order to be considered base period wages, earnings must be "paid to an employee during his or her base period as a result of employment for an employer..."

Wisconsin Statutes § 108.02(12)(a) creates a presumption that a person who provides services for pay is an employee, and it requires the entity for which the person is performing those services to bear the burden of proving that the person is not an employee. See, Dane County Hockey Officials, UI Hearing No. S9800101MD (LIRC Feb. 22, 2000); Quality Communications Specialists, Inc., UI Hearing Nos. S0000094MW, etc. (LIRC July 30, 2001).

Since the record shows that Alsheski performed services for Codeworks for pay during the relevant base period, Codeworks has the burden to rebut the presumption that he did so as a statutory employee.

The record shows that Alsheski applied for a FEIN and condition 1. is satisfied.

The record also shows that Alsheski filed a Schedule C based on the services performed for Codeworks, but does not specify whether this Schedule C was filed for the 2007 tax year, the 2008 tax year, or both. Condition 2. requires that this return have been filed for the 2007 tax year, i.e., the year in which Alsheski first performed services as a new business. However, Alsheski's unrebutted testimony that he "reported the income that I received from the employer on a Schedule C..." is sufficient to satisfy condition 2 even without specification of the year or years in which he did so.

The focus of condition 3. is upon determining whether a separate business, i.e., an enterprise created and existing separate and apart from the relationship with the putative employer, is being maintained with the individual's own resources. Princess House, Inc., v. DILHR, 111 Wis.2d 46, 330 N.W.2d 169 (1983); Larson v. LIRC, 184 Wis.2d 378, 516 N.W.2d 456 (Ct. App. 1994). In Quality Communications Specialists, Inc., UI Hearing Nos. S0000094MW, etc. (LIRC July 30, 2001), the commission clarified that each factor set forth in the statutory language governing this condition must be met in order for the condition to be satisfied.

Although Alsheski used his personal computer to generate invoices, the record shows that he did not have a separate business office or even a separate space in his home devoted to a business purpose, and generally used Assurant's offices and equipment to perform the subject services. Moreover, the fact that Alsheski did not perform similar services for any other entity tends to show that he did not operate a business enterprise separate and apart from his relationship with Codeworks. See, Prince Cable, Inc., UI Hearing No. S9900227MW (LIRC Feb. 23, 2001) (fact that worker performs services only for putative employer generally inconsistent with existence of separate business). Condition 3. is not satisfied.

To satisfy condition 4., it must be established that the individual operates under contracts to perform specific services for specific amounts of money, and that, under these contracts, he controls the means and method of performing the services.

Condition 4 requires multiple contracts. These may take the form of multiple contracts with separate entities, or multiple serial contracts with the putative employer if such contracts are shown to have been negotiated "at arm's length," with terms that will vary over time and will vary depending on the specific services covered by the contract. The existence of bona fide multiple contracts tends to show that the individual either has multiple customers, or that he has periodic opportunities for "arm's length" negotiation with the putative employer as to the conditions of their relationship, and that he is not dependent upon a single, continuing relationship that is subject to conditions dictated by a single employing unit. See, T-N-T Express LLC, UI Hearing Nos. S9700385, etc. (LIRC Feb. 22, 2000); Dane Co. Hockey Officials, supra.

The record shows that Alsheski performed services under a single contract with Codeworks, which was renewed unchanged. See, Preferred Financial of Wisconsin, Inc., UI Hearing No. S0600240MW (LIRC Oct. 23, 2008); Barnett v. Alternative Entertainment, Inc., UI Hearing No. 02003109WU (LIRC Oct. 29, 2002) (condition 4. not satisfied by single contract with putative employer which was essentially renewed unchanged except for updated price structure). The record does not show that Alsheski had contracts with any other entity.

The multiple contracts requirement is not met here, and condition 4. is not satisfied as a result.

Applying condition 5. requires a determination of what services are performed under a contract, what expenses are related to the performance of those services, which of those expenses are borne by the person whose status is at issue, and whether those expenses constitute the main expense. See, Quality Communications Specialists, Inc., supra. This inquiry typically requires quantification of these expenses. See, Quale & Associates, Inc., UI Hearing No. S0200210MW (LIRC Nov. 19, 2004), aff'd Quale & Assoc. d/b/a Handyman Connection v. LIRC & DWD, Case No. 04-CV-10648 (Wis. Cir. Ct., Milwaukee Co., May 24, 2005)

The record shows that most of the expenses related to the performance of the subject services by Alsheski were borne by Assurant, including the cost of office space, equipment, and materials. Although Alsheski paid the cost of driving to Assurant's offices and parking there, the record does not establish that these costs would have exceeded those borne by a typical commuting employee. See, Thomas J. Harris, UI Hearing Nos. S0400220HA, S0400196HA (LIRC June 15, 2006).

Condition 5. is not satisfied.

The record shows that, pursuant to the terms of the agreement between Alsheski and Codeworks, if, for example, Alsheski ceased performing the contracted consulting services before the end date of the agreement, he would be responsible for paying the costs of hiring someone else to complete these services. This is sufficient to satisfy condition 6. See, Quale & Asssociates, supra.

Condition 7. requires that the individual receive compensation for his services on a commission, per-job, or competitive-bid basis and not on any other basis. Codeworks testified that there had been a competitive bid process, and Alsheski was selected to perform the services because he charged $80 per hour while certain other available consultants charged $100 per hour. The question is whether this constitutes compensation on an hourly basis or a competitive-bid basis.

A somewhat similar fact situation was considered by the commission in Acute Care, Inc., UI Hearing No. S0500090MD (LIRC Feb. 15, 2008). There, physicians bid on emergency room shifts in certain hospitals. Although the bids were stated in whole dollar terms, the shifts were for a given number of hours, so, in effect, the bids were based upon an hourly rate of pay. In that case, the commission held that the physicians received compensation on a competitive-bid basis, and condition 7. was satisfied as a result. The difference here, however, is that the physicians in Acute Care were presumably paid the set shift amount whether or not they were required to stay beyond the end of a shift to attend to an emergency, but Alsheski was paid for all of the hours he actually worked.

This distinction supports the conclusion that the basis of compensation here is hourly. Since compensation on an hourly basis constitutes compensation on "some other basis" within the meaning of condition 7, this condition is not satisfied. See, Quale & Associates, supra.

Condition 8. examines whether, under an individual contract for the claimant's services, there can be a profit (if the income received under that contract exceeds the expenses incurred in performing the contract), as well as whether there can be a loss under that contract (if the income received under that contract fails to cover the expenses incurred in performing the contract). The test is whether, over the course of the contract between Alsheski and Codeworks, there was a realistic possibility that Alsheski could realize a profit or suffer a loss. See, Zoromski v. Cox Auto Trader, UI Hearing No. 07000466MD (LIRC Aug. 31, 2007). The receipt by Alsheski of more in pay for his consulting services than he was required to spend could constitute "realiz[ing] a profit.under contracts to perform services." See, Quality Communications Specialists, Inc., supra. However, the fact Alsheski had few expenses and was guaranteed payment for every hour he worked, militates against a conclusion that he assumed any type of business risk and could realistically suffer a loss over the term of his relationship with Codeworks. See, Ziebell v. Cox Auto Trader, UI Hearing No. 07606213MW (LIRC Jan. 4, 2008).

The ALJ offered the following rationale for her conclusion that Alsheski could suffer a loss within the meaning of condition 8.:

The potential loss would occur if TAL were to be sued and found liable in an amount higher than its liability insurance policy limits, or if he were not paid for services deemed unacceptable by Assurant.

However, in assessing whether a realistic possibility of loss exists, the proper test is whether the individual faces a genuine business risk if the services are completed as contracted. The test is not whether, given the universe of possibilities, something could occur that could result in a loss. If that were the test, this condition would be rendered meaningless.

Condition 8. is not satisfied.

Condition 9. requires proof of a cost of doing business which Alsheski would incur even during a period of time he was not performing work for Codeworks. The record shows that Alsheski obtained liability insurance as a condition of contracting with Codeworks. Unlike the circumstances in Gustavson v. Carpenters,Inc., UI Hearing No. 09400168AP (LIRC April 30, 2009), the record here shows that Alsheski was unable to readily discontinue this insurance once he ceased performing services for Codeworks, and was required to continue paying for this insurance for several months thereafter. Although it is a close question, the record supports a conclusion that this liability insurance obligation was a continuing one, and condition 9. is satisfied.

The commission has interpreted condition 10. as intending to examine the overall course of a person's business. See, Quality Communications Specialists, Inc., supra.; Harlan Mrochinski, UI Hearing No. S0100001WR (LIRC July 15, 2004)(condition 10. requires that a significant investment is put at risk and there is the potential for real success through the growth in the value of the investment and for real failure in the sense of actual loss of the investment). The record does not show that Alsheski made a significant business investment, and condition 10. is not satisfied.

In summary, only conditions 1., 2., 6., and 9. are satisfied. Since Wis. Stat. § 108.02(12)(bm) requires that seven conditions be satisfied in order for a worker to be considered an independent contractor, the satisfaction of only four of the ten conditions compels the conclusion that Alsheski performed services for Codeworks as an employee, not an independent contractor.

The decision of the administrative law judge is reversed. Accordingly, the wages paid to the claimant by the employer during the time period at issue shall be included in the department's computation of the employee's base period wages.

Dated and mailed February 26, 2010
alsheth . urr : 115 : 1 EE 410.07 EE 410.08

/s/ James T. Flynn, Chairperson

/s/ Robert Glaser, Commissioner

/s/ Ann L. Crump, Commissioner

NOTE: The commission did not confer with the administrative law judge before reversing her decision, because its reversal was not based upon a differing view as to the credibility of witnesses, but instead upon a differing interpretation of the relevant law.

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